Bayer may look to gobble up quite a large acquisition in the near future, possibly Zoetis or even Pfizer. The pharmaceutical industry as a whole as seen a flood of mergers and acquisitions this year, including former Bill Ackman target Allergan, which avoided hostile advances that were made by Valeant Pharmaceuticals with the blessing of Ackman by merging instead with Actavis.
Allergan and Pfizer also announced plans for a mega-merger last month, and since then, there’s been a lot of talk about whether regulators will allow the combination to move forward.
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Bayer to target Zoetis?
Reuters reports that two unnamed banking sources claim that Bayer is looking for a “major life sciences M&A deal in the next few years.” Thus far, Bayer has not participated in the wave of consolidations that have struck the pharmaceutical industry. Reuters’ sources reportedly said that the firm may see its lack of participation in the string of M&As as possibly undermining its position in some areas like animal health and crop protection.
Zoetis makes perfect sense if Bayer is seeking a large animal sciences company due to its specialization in veterinary drugs. Last week DuPont and Dow Chemical announced plans to merge their agriculture businesses, which could pose a serious threat for Bayer’s seed, pesticide and drug business if the transaction goes through. The combination also eliminates two potential targets in the agriculture area. In the related animal health segment, Bayer is losing its dominant position due to other combinations in the industry, including the negotiations between Boehringer Ingelheim and Sanofi.
A focus on agriculture
If it truly does want to pursue an acquisition, Bayer may have to borrow heavily using its strong credit rating or possibly hold a cash call, said Reuters’ sources. An alternative they also suggested is a trade of businesses. The German company spun off its plastics segment in October, and management now says that they plan to bring their agriculture and human health services under one roof.
However, the unnamed sources also said they still see the animal health and pesticides businesses as being important parts of the firm. Investment bankers said recently that the company could spin off its seeds and crop protection segment or possibly combine it with another firm in the industry.
Bill Ackman targeting Zoetis
If Zoetis does receive an offer from Bayer, its future lies in the hands of activist investor Bill Ackman, who took a more than 8% stake in the animal health firm earlier this year and was granted a seat on the board of directors. There was talk of a combination between Valeant – which was involved with Ackman for quite some time as he attempted to engineer a merger with Allergan – and Zoetis in June, but nothing ever came of the rumor.
As a result, Ackman’s involvement in Zoetis could mean a push for a merger is going on behind the scenes. Any approach may pique the activist investor’s interest.